A public company acquirer has a challenge, right out of the gate. Buying a private company requires an important secret sauce most public companies don’t possess – empathy. If you like, when you’re buying you’re selling!
Take a classic target acquisition profile. The acquirer would like to acquire private software companies in certain key technology niches, with annualized SaaS revenue in the $5m to $20m range. There should be other criteria but essentially the acquirer, a $2Bn to $20Bn large public group is about to have a dialogue with a much smaller brethren. So let me offer some coaching thoughts to help you ensure those early meetings get off to a great start and build empathy.
Top 10 Empathy Tips
- Respect: Demonstrate you understand how the business was started. Remember out of 27 million private companies in the US only, 634,000 firms employ 20 people or more, only 108,000 employ 100 people or more, only 18,000 employ more than 500 people or more etc. Do you understand the private company landscape? Show you understand it takes great courage to build a business against the odds. You get it.
- Articulate the benefits to management of joining your group, including, amplifying their voice in the market, access to deeper distribution channels, access to capital, access to technology, access to talent, allowing them to truly fulfill their potential much quicker. Use previous deals as reference sites to demonstrate that the entrepreneurial spirit is kept alive and well, after the deal (note around 67% of CEOs acquired by Google stay, the normal ratio is 33%).
- Over communicate, acknowledge the target management team has a business to run. State that you appreciate that they need to know where they stand. An approach by an acquirer (assuming the company wasn’t for sale prior to your approach) is very distracting for a private company management team. Their bandwidth is always stretched. Managers are often wearing several hats to keep the plates spinning! Therefore acquirers need to spell out their process, and demonstrate they will move quickly to establish that a deal makes sense.
- Explain why you need the information you need. Explain you are trying to validate a post acquisition scenario that is believable. You are trying to gather sufficient information to place an attractive value on the business, based on all the benefits of owning the business. Missing facts undermine value.
- Use polite questions to clarify what matters to the owners. Of course price is key but what else matters? The future role of key family members, essential managers, private assets on balance sheets, personal guarantees, travel budgets, and vacation time can all appear on the non-price agenda items that matter.
- Explain the backstories about your group. Give the management insight into your strategic plan. Explain how they will fit in. Explain why there is a strong strategic fit.
- Time kills deals. Don’t let uncertainty spoil the empathy. Give the point person on the target side access to a key person on the acquirer’s side. This is a very stressful event for a seller’s management team. Don’t give them cause to over worry and second-guess your intentions.
- Remember as you negotiate information or even the actual terms of the deal, professional courtesy is the key. These people will potentially become an essential part of your group going forward. Clarify belief systems. Understand why a seller is taking that stance. Don’t opine for the sake of it.
- Clarify your understanding of the shifts and trends in the marketplace. Demonstrate your knowledge with humility. I encourage private company management teams to occasionally meet bigger brothers, just to learn how they are thinking!
- If there is no deal to be done for whatever reason, remember to part ways as friends. You never know what’s round the corner. Circumstances can change.
The Portfolio Partnership continues to offer practical operational support to leaders who wish to scale their businesses both organically and by acquisition. We offer complimentary, strictly confidential, “surgery hours” most weeks to help you create a remarkable business. Ian@TPPBoston.com or call 978 395 1155.